Curves are coming. In the face of soaring inflation, the European Central Bank (ECB) has taken a turn in its economic policy that has put the financial market in check: the rate hike. This is not good news for people who have a variable mortgage, since the euribor, the reference used to grant mortgage loans, is positive. And it hasn’t happened since 2016. What will it cause? A rising mortgage prices confirmed by all experts.
In other words, you are going to pay more for these loans. In fact, according to estimates, the rise in rates will cause half of the payroll to be used to correct them. A calculation that could go further if the worst forecasts come true. This is how he warns CaixaBank Research reportwith an announcement that will make a dent in many families: the mortgage effort will go from 33.4% to 36.6% in 2023being the percentage of income that each household will have to allocate to face the increase.
This, yes, provided that the estimates are met: that the Euribor rises to 1.5% in three years, gradually. A considerable increase but still far from the worst records, since it cannot be compared to the levels reached during the real estate crisis (the mortgage effort rose to 54%). Now, the financial markets predict “a somewhat more aggressive action by the ECB”, as the aforementioned report points out.
In fact, they warn that the 12-month Euribor interest rate, which is the one that governs the installments of practically all variable mortgages, will rise to 1.06% at the end of 2022. Already in 2023, it would rise to 2% . A ratio that, directly, returns to increase the financial effort of families: they would have to dedicate up to 39.2% of the income at the end of 2023. An effort that, as has been mentioned, will affect the variable rate mortgages. For this reason, the report concludes, it will have a limited impact on recently mortgaged households: the majority chose the fixed rate.
When will the rate hike take place?
According to the president of the European Central Bank (ECB), Christine Largarde, the rate hike could start next July. An announcement that is already noticeable in the Euribor, in constant rise in recent weeks. Thus, it has reached positive ground, which has not happened since 2016. Specifically, it closed the month of April at 0.013%, about 0.25 points above the previous month, where it stood at -0.237%.
Why does this rate hike affect mortgages? Given the high inflation, which has marked the aforementioned rise in the Euribor, the ECB is going to raise rates for financial institutions when it comes to granting them credit. Therefore, banks are also going to have to upload them to their clients to stay. From the specialized portal ‘Economic & Jurist’ they explain it very simply: when a bank needs money, the European Central Bank charges a reference interest rate. If this interest is raised, the banks will also have to raise the interest they charge their clients in order to obtain a profit.
For this reason, variable rate mortgages will be the most affected, since, as explained above, they are based on the Euribor when setting interest rates. But, collaterally, it will also affect the fixed ones, at least the newly acquired ones: they are going to toughen the conditions for hiring them. As banks are interested in variables, since they are the ones with which they can achieve a greater economic benefit, the real estate portals agree that they are going to demand more conditions to be able to access them. For example, they will force the hiring of “bonuses”, such as insurance with the entity or payroll with them.